P. 1
Basel 3 January 2012

Basel 3 January 2012

|Views: 7|Likes:
Published by George Lekatis
Basel iii Compliance Professionals Association (BiiiCPA)
http://www.basel-iii-association.com

The Basel iii Compliance Professionals Association (BiiiCPA) is the largest association of Basel iii Professionals in the world. It is a business unit of the Basel ii Compliance Professionals Association (BCPA), which is also the largest association of Basel ii Professionals in the world.

Receive (at no cost) the New Member Orientation newsletters:
http://www.basel-iii-association.com/New_Member_Orientation_Newsletters.html

Subscribe to Receive (at no cost) Basel II / Basel III Related News, Alerts, Opportunities, Updates, our Monthly Newsletter and Limited Time Offers for our Basel II / Basel III Training and Certification Programs:
http://forms.aweber.com/form/42/1586130642.htm
Basel iii Compliance Professionals Association (BiiiCPA)
http://www.basel-iii-association.com

The Basel iii Compliance Professionals Association (BiiiCPA) is the largest association of Basel iii Professionals in the world. It is a business unit of the Basel ii Compliance Professionals Association (BCPA), which is also the largest association of Basel ii Professionals in the world.

Receive (at no cost) the New Member Orientation newsletters:
http://www.basel-iii-association.com/New_Member_Orientation_Newsletters.html

Subscribe to Receive (at no cost) Basel II / Basel III Related News, Alerts, Opportunities, Updates, our Monthly Newsletter and Limited Time Offers for our Basel II / Basel III Training and Certification Programs:
http://forms.aweber.com/form/42/1586130642.htm

More info:

Categories:Types, Business/Law
Published by: George Lekatis on Jun 14, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PPTX, PDF, TXT or read online from Scribd
See more
See less

03/27/2014

pdf

text

original

1

Basel iii Compliance Professionals Association (BiiiCPA)
1200 G Street N W Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 Web: www.basel-iii-association.com

Basel I I I N ews, January 2012
Dear Member,

Interesting! We have the first important Basel iii templates.
We will start with the Post 1 January 2018 disclosure template
From the BIS Consultative document, Definition of capital disclosure requirements, Issued for comment by 17 February 2012, December 2011

Post 1 January 2018 disclosure template
The common template that the Basel Committee has developed is designed to capture the capital positions of banks after the transition period for the phasing-in of deductions ends on 1 January 2018 The Basel Committee proposes that banks should publish the completed disclosure template with the same frequency as the publication of their financial statements (typically quarterly or half yearly). Furthermore, it is proposed that the completed disclosure template should either be included in the bank’s published financial reports or, at a minimum, these reports should provide a direct link to the completed template on the bank’s website. Banks should also make available on their websites an archive of all templates relating to prior reporting periods.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

2

Certain rows are in italics. These rows would be deleted after all the ineligible capital instruments have been fully phased out (from 1 January 2022 onwards).
Regarding the shading (below): -Each dark grey row introduces a new section detailing a certain component of regulatory capital. -The light grey rows with no thick border represent the sum cells in the relevant section. -The light grey rows with a thick border show the main components of regulatory capital and the capital ratios.

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

3

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

4

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

5

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

6

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

7

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

8

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

9

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

10

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

11

Notes

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

12

Disclosure template during the transition phase
The proposed template for use during the transition phase is the same as the steady state disclosure template set out in Section 1 except for the following additions (all of which are highlighted in the template below using cells with dotted borders and capitalised text): A new column has been added for banks to report the amount of each regulatory adjustment that is subject to the existing national treatment during the transition phase (labelled as the “pre-Basel I I I treatment”).

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

13

Example - Row 8: In 2014 banks will be required to make 20% of the regulatory adjustments in accordance with Basel I I I. Consider a bank with “Goodwill, net of related tax liability” of $100 mn and assume that the bank is in a jurisdiction that does not currently require this to be deducted from common equity.

The bank would report $20 mn in the first of the two empty cells in row 8 and report $80 mn in the second of the two cells.
The sum of the two cells will therefore equal the total Basel I I I regulatory adjustment. While the new column shows the amount of each regulatory adjustment that is subject to the existing national treatment, it is necessary to show how this amount is included under existing national treatment in the calculation of regulatory capital.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

14

Therefore, new rows have been added in each of the three sections on regulatory adjustments to allow each jurisdiction to set out their existing national treatment.

Example - Between rows 26 and 27: Consider a jurisdiction that currently filters out unrealised gains and losses on holdings of AFS debt securities and consider a bank in that jurisdiction that has an unrealised loss of $50 mn. The transitional arrangements require this bank to recognise 20% of this loss (ie $10 mn) in 2014. This means that 80% of this loss (ie $40 mn) is not recognised. The jurisdiction would therefore include a row between rows 26 and 27 that allows banks to add back this unrealised loss. The bank would then report $40 mn in this row as an addition to Common Equity Tier 1.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

15

Example - Between rows 41 and 42: Assume that the bank described in the bullet point above is in a jurisdiction that currently requires goodwill to be deducted from Tier 1. This jurisdiction would insert a new row in between rows 41 and 42, to indicate that during the transition phase some goodwill will continue to be deducted from Tier 1 (in effect Additional Tier 1). The $80 mn that the bank had reported in the last cell of row 8, would then need to be reported in this new row inserted between rows 41 and 42.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

16

Example – Row 60: To take account of the fact that the existing national treatment of a Basel I I I regulatory adjustment may be to apply a risk weighting, jurisdictions would also be able to add new rows immediately prior to the row on risk weighted assets (row 60). These rows would need to be defined by each jurisdiction to list the Basel I I I regulatory adjustments that are currently risk weighted.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

17

Example: Consider a jurisdiction that currently risk weights defined benefit pension fund net assets at 200% and in 2014 a bank has $50 mn of these assets.
The transitional arrangements require this bank to deduct 20% of the assets in 2014. This means that the bank will report $10 mn in the first empty cell in row 15 and $40 mn in the second empty cell (the total of the two cells therefore equals the total Basel I I I regulatory adjustment).

The jurisdiction would disclose in one of the inserted rows between row 59 and 60 that such assets are risk weighted at 200% during the transitional phase.
The bank would then report a figure of $80 mn ($40 mn * 200%) in that row.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

18

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

19

Financial stability and risk disclosure
Keynote address by Mr Jaime Caruana, General Manager of the BIS, to the FSB Roundtable on risk disclosure, Basel, 9 December 2011. Abstract High-quality risk disclosure is good for markets, because it helps investors make more informed decisions. It is good for prudential supervisors, because it makes banks more accountable to both supervisors and investors. And it is good for financial stability, because it reduces the chance that unexpected events will disrupt the system. To be effective in promoting market discipline, disclosure must be complemented by strong incentives for counterparties to engage in monitoring. The public sector's role in promoting transparency arises from a number of market failures, including the externalities to be gained from common standards, the "free rider" problems that may lead to too little investment in producing and gathering financial information, and the tendency of markets to overreact to bad news when the information environment is clouded. Guided by these considerations, the Financial Stability Board and the Basel Committee on Banking Supervision have long supported improvements in transparency, through their work on accounting, disclosure templates and aggregate market data. At the same time, industry and investor representatives need to play a key role in developing disclosure standards.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

20

Accounting standards need to converge, standards for the discussion and analysis that accompany financial statements need to be established, and external auditors need to insist on higher-quality risk disclosures.
Full speech Good morning, and welcome to Basel. We are meeting at a time of great turbulence and uncertainty in the global economy and financial system. But although all of us are focused on immediate challenges and risks, it is important not to lose sight of the need to carry forward our longer-term agenda towards building a better, stronger financial system. Your discussions today are an essential part of making progress on this agenda. If we can achieve a significant improvement in the quality, comparability and timeliness of risk disclosures by financial firms, this will without a doubt help break the vicious cycles of contagion, asset sales and pullback from risk-taking that have paralysed markets repeatedly over the last few years. The three pillars of Basel I I continue to guide our efforts to strengthen financial regulation in the Basel I I I era and beyond. We've now accomplished a great deal on Pillar 1 - minimum capital requirements. The task now is to follow through on Pillar 2 by strengthening supervisory review, with a focus on firm-wide risk management and risk governance, and on Pillar 3 disclosures, by improving market discipline.

And while Pillar 3 is a good step in the right direction, achieving our overall objective of stronger market discipline will require efforts that go beyond strictly regulatory approaches.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

21

How do we promote market discipline?
First, we need to make sure that the market has the information it needs. And a key element of market information is sound, consistently high-quality risk disclosures. That will be the subject of my remarks, and of course the theme of your discussions today. But I should also point out that market discipline only works when investors have the right incentives to use the information, and banks have the right incentives to take account of the signals sent by the market. For these incentives to be right, the perception of a public safety net for banks that are "too big to fail" needs to be eliminated. This points to the relevance of the work by the FSB and Basel Committee to reduce moral hazard by increasing loss absorbency, strengthening resolution procedures and enhancing supervisory intensity for systemically important banks. If we successfully follow through on this work, then investors will have stronger incentives to develop a comprehensive picture of the risks and exposures facing financial institutions, and the banks should face more pressure to be as accurate and transparent as possible about these exposures. The FSB and the Basel Committee have long supported sound accounting and robust disclosure standards and practices. Examples include the risk disclosure template for structured credit products set out in the Financial Stability Forum's report to the G7 in April 2008, the Basel Committee's work on Pillar 3 disclosures, and the more recent work to encourage sound expected-loss provisioning rules and related disclosures.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

22

Sound standards and practices enhance the quality of information available to investors, depositors and other market participants, as well as to prudential authorities and regulators - including about risk exposures, risk management practices and policies, governance, and capital measures and ratios.
This can lead to greater transparency that can support market confidence, improve market discipline and facilitate sound risk management practices by financial firms and other companies, and has the potential to lead to more consistent practices over time.

Together with effective supervision, these can help to foster safe and sound banking systems and more stable financial markets.
We should recognise the limitations to what improved information about risks can achieve. The economy and the financial system are always changing and evolving, and our understanding of key relationships struggles to keep up. Risks often appear precisely in the areas to which market participants and public authorities have paid the least attention, and about which they have demanded the least accurate information. Given these limits to our understanding, we need to be prudent. This means protecting the system against the unknown and unexpected, for example by strengthening capital and liquidity buffers at institutions and initial margin in traded markets. Nevertheless, strengthened, transparent disclosure is good for markets, because it helps investors make more informed decisions. It is good for prudential supervision, because it helps to make banks more accountable, both to supervisors and investors.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

23

And it is good for the stability of the system as a whole, because it reduces the chance that unexpected events will cause major system-wide disruptions.
We should not forget that the official sector has a direct interest in promoting financial stability through increased transparency; the experience of the past four years has reminded us of the many costs that a poorly functioning financial system can impose on taxpayers and the real economy. One might think that market participants would naturally provide comprehensive, relevant disclosure in a timely manner, since it's in the interest of investors, counterparties and institutions. But as we have seen, this is often not the case. For example, during the ongoing turbulence related to European sovereign debt, investors and market analysts have struggled to develop a comprehensive and reliable assessment of the exposures of financial institutions to troubled sovereigns through bond holdings and derivatives positions. Some of the disruptions to bank funding markets have reflected scepticism as to whether enough is known about these exposures, as well as the chain of exposures related to them - banks' exposures to other banks, and so on. We at the BIS regularly publish information on the aggregate exposures of national financial systems, but of course this says nothing about the network of exposures of individual institutions. Lacking adequate information to inform their risk assessments, providers of funds have naturally pulled back from European financial firms of all sorts - in the process undermining the stability of the system and putting still greater pressure on banks and sovereigns.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

24

This suggests the public sector has a key role in promoting market transparency. Whenever one suggests the public sector should do something, it's good practice to identify the specific market failures that impel public action.
With respect to risk disclosure, I would emphasise the following ones. First, common standards have externalities. Just as everyone benefits from common weights and measures in the physical world, or from common standards for electronic media like DVD encoding, there's a social benefit from financial statements following a single standard, including key concepts, common definitions and principles, and, to the extent possible, common formats. In some cases, collaborative efforts by the industry can generate the needed standards; in others, especially where the subject matter is complex and there is a wide range of interested parties, some of whom may not support full, timely transparency, the public sector must play a role. Second, producing and gathering financial information are subject to "free rider" problems. It's costly to produce, interpret and analyse information from disclosures. But if one investor or counterparty does so, prices adjust and others benefit from it. So while investors can and do make money from carefully studying publicly available information, there's still an incentive to "free ride" - to wait for someone else to gather relevant information, then to share in the benefit by trading on it. And preparers may face similar incentives to wait for others before providing useful information about their risk exposures and risk management practices.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

25

As a result, everyone in the market may just watch each other, instead of making the investment in producing and obtaining accurate information. There's no way to completely eliminate such free-riding from markets, but establishing common standards goes part way, by reducing the costs in time, effort and resources - needed to produce and acquire market-relevant information.
We want to see a richer array of information made available that is less costly to collect, more widely available to market participants, more usable and more comparable.

This should help take us towards markets where prices are moved primarily by new information, rather than by herd behaviour, leverage or sudden shifts in risk appetites.
Third, if the information environment is murky, then markets overreact to bad news. We saw this in the 2007-09 crisis - whenever problems were discovered in one asset class, or one institution, investors started to scrutinise similarly placed assets or institutions, and downgraded their valuations of them. This sometimes led to a self-fulfilling process that made things still worse. The same has happened in sovereign debt crises, including the current challenges in Europe - when one country gets into trouble, investors immediately look around to see who's next. This creates a kind of collective action problem - it makes sense for each player individually to pull back, but when many players do this the impact is devastating for the market as a whole.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

26

Greater transparency is one way to help break this cycle, by making it possible for investors to see more precisely where, and whether, their concerns are justified.
Saying there is a public sector role in promoting transparency, for the reasons I 've just laid out, is not the same as saying that strengthening transparency is the public sector's job alone. Indeed, industry and investor efforts need to be at the centre of developing standards, since this will ensure that new requirements have the proper technical grounding and a strong buy-in by market participants. The public sector can contribute by catalysing private sector efforts and by directing those efforts in fruitful directions. At the same time, however, if the private sector does not step in to address these issues adequately, supervisory and regulatory authorities may need to undertake further reforms to improve disclosure standards and practices. Alongside this work at the firm level, the international community has also been working to improve transparency by strengthening the collection, aggregation and dissemination of financial sector data. The BIS, together with the Committee on the Global Financial System, has long performed this role with respect to cross-border banking and OTC derivatives market activity. Looking forward, the FSB has made substantial progress in developing a data framework that facilitates monitoring of key interlinkages among the major global banks in a consistent manner. While this project is still very much work in progress, it is notable that national authorities and the FSB are considering storing and pooling the
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

27

data collected nationally on a harmonised basis in a central hub, proposed to be hosted by the BIS.
The FSB and national supervisors are also working to make sure that the shift of derivatives market activity to central trading and clearing platforms leads to a greater availability of useful market-level data on activity in these instruments. Also, following the FSB recommendation earlier this year, the FSB's Standing Committee on the Assessment of Vulnerabilities, which I chair, is also assessing whether newly identified risks could benefit from improved risk disclosure practices. But even as we work to improve the assessment of risks and the availability and quality of aggregated industry and market data through efforts by the official sector, strengthened disclosures by individual institutions still offer the most promising benefits in terms of strengthening financial stability. Going forward, I would emphasise a number of key challenges: Following through on convergence of IASB and FASB accounting standards, including their risk disclosure requirements. Progress in converging the two main international accounting standards frameworks will help ensure that users can make meaningful comparisons across institutions and entities operating in multiple jurisdictions. Developing standards for the discussion and analysis that firms provide to complement the figures in the financial statements. Common standards can be useful not only for financial data, but also for the interpretations given to them.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

28

Disclosures often seek to provide information "through the eyes of management" that reflects how organisations measure and manage their risks.
While this approach can be helpful in understanding business models and risk management practices, it can lead to disclosure of information that is not comparable across firms, and therefore difficult for investors and regulatory bodies to assess. Strengthening the contribution of external audits to the quality of risk disclosures. What is the degree of assurance that auditors provide about public disclosures, including those in financial statements, managements' discussion and analysis sections of financial reports, and risk information on their clients' websites? To what extent, and in what ways, do they review or audit the accuracy and reliability of the financial reports that they examine, and how do they report on their assessments and findings to the public? These are deep questions about how to best evolve the audit function as financial systems and investor needs evolve, and they won't be resolved overnight. They need to be addressed, however, if we are to clarify and to strengthen the role of auditors in promoting transparency at firms. The discussions at the FSB Roundtable today will mark important steps towards progress in many of these areas. I am confident the FSB and its standard-setting bodies are up to the task, and I encourage key stakeholders in the private sector to join together to encourage and to support better, more transparent risk disclosure practices.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

29

Core principles for effective banking supervision
BIS Consultative document, December 2011 The Basel Committee on Banking Supervision has issued for consultation its revised Core principles for effective banking supervision. The consultative paper updates the Committee's 2006 Core principles for effective banking supervision and the associated Core principles methodology (assessment methodology). Both the existing Core Principles and the associated assessment methodology have served their purpose well in terms of helping countries to assess their supervisory systems and identify areas for improvement. While conscious efforts were made to maintain continuity and comparability as far as possible, the Committee has merged the Core Principles and the assessment methodology into a single comprehensive document. The revised set of twenty-nine Core Principles have also been reorganised to foster their implementation through a more logical structure, highlighting the difference between what supervisors do themselves and what they expect banks to do: Principles 1 to 13 address supervisory powers, responsibilities and functions, focusing on effective risk-based supervision, and the need for early intervention and timely supervisory actions. Principles 14 to 29 cover supervisory expectations of banks, emphasising the importance of good corporate governance and risk management, as well as compliance with supervisory standards.

Important enhancements have been introduced into the individual Core Principles, particularly in those areas that are necessary to strengthen supervisory practices and risk management.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

30

Various additional criteria have been upgraded to essential criteria as a result, while new assessment criteria were warranted in other instances.
Close attention was given to addressing many of the significant risk management weaknesses and other vulnerabilities highlighted in the last crisis. In addition, the review has taken account of several key trends and developments that emerged during the last few years of market turmoil: the need for greater intensity and resources to deal effectively with systemically important banks; the importance of applying a system-wide, macro perspective to the microprudential supervision of banks to assist in identifying, analysing and taking pre-emptive action to address systemic risk; and the increasing focus on effective crisis management, recovery and resolution measures in reducing both the probability and impact of a bank failure. The Committee has sought to give appropriate emphasis to these emerging issues by embedding them into the Core Principles, as appropriate, and including specific references under each relevant Principle. In addition, sound corporate governance underpins effective risk management and public confidence in individual banks and the banking system. Given fundamental deficiencies in banks' corporate governance that were exposed in the last crisis, a new Core Principle on corporate governance has been added in this review by bringing together existing corporate governance criteria in the assessment methodology and giving greater emphasis to sound corporate governance practices.

Similarly, the Committee reiterated the key role of robust market discipline in fostering a safe and sound banking system by expanding an existing Core Principle into two new ones dedicated respectively to
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

31

greater public disclosure and transparency, and enhanced financial reporting and external audit.
As a result of this review, the number of Core Principles has increased from 25 to 29. There are a total of 36 new assessment criteria, comprising 31 new essential criteria and 5 new additional criteria. In addition, 33 additional criteria from the existing assessment methodology have been upgraded to essential criteria that represent minimum baseline requirements for all countries. The Basel Committee welcomes comments on the revised Core Principles. Comments should be submitted by Tuesday 20 March 2012 by email to: baselcommittee@bis.org. Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for I nternational Settlements, CH-4002 Basel, Switzerland. All comments may be published on the Bank for I nternational Settlements's website unless a commenter specifically requests confidential treatment.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

32

The 29 Core Principles are: Supervisory powers, responsibilities and functions
Principle 1 – Responsibilities, objectives and powers: An effective system of banking supervision has clear responsibilities and objectives for each authority involved in the supervision of banks and banking groups.
A suitable legal framework for banking supervision is in place to provide each responsible authority with the necessary legal powers to authorise banks, conduct ongoing supervision, address compliance with laws and undertake timely corrective actions to address safety and soundness concerns.

Principle 2 – Independence, accountability, resourcing and legal protection for supervisors: The supervisor possesses operational independence, transparent processes, sound governance and adequate resources, and is accountable for the discharge of its duties.
The legal framework for banking supervision includes legal protection for the supervisor.

Principle 3 – Cooperation and collaboration: Laws, regulations or other arrangements provide a framework for cooperation and collaboration with relevant domestic authorities and foreign supervisors.
These arrangements reflect the need to protect confidential information.

Principle 4 – Permissible activities: The permissible activities of institutions that are licensed and subject to supervision as banks are clearly defined and the use of the word “bank” in names is controlled. Principle 5 – Licensing criteria: The licensing authority has the power to set criteria and reject applications for establishments that do not meet the criteria.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

33

At a minimum, the licensing process consists of an assessment of the ownership structure and governance (including the fitness and propriety of Board members and senior management) of the bank and its wider group, and its strategic and operating plan, internal controls, risk management and projected financial condition (including capital base).
Where the proposed owner or parent organsation is a foreign bank, the prior consent of its home supervisor is obtained.

Principle 6 – Transfer of significant ownership: The supervisor has the power to review, reject and impose prudential conditions on any proposals to transfer significant ownership or controlling interests held directly or indirectly in existing banks to other parties. Principle 7 – Major acquisitions: The supervisor has the power to approve or reject (or recommend to the responsible authority the approval or rejection of), and impose prudential conditions on, major acquisitions or investments by a bank, against prescribed criteria, including the establishment of cross-border operations, and to determine that corporate affiliations or structures do not expose the bank to undue risks or hinder effective supervision. Principle 8 – Supervisory approach: An effective system of banking supervision requires the supervisor to develop and maintain a forward-looking assessment of Core Principles for Effective Banking Supervision the risk profile of individual banks and banking groups, proportionate to their systemic importance; identify, assess and address risks emanating from banks and the banking system as a whole; have a framework in place for early intervention; and have plans in place, in partnership with other relevant authorities, to take action to resolve banks in an orderly manner if they become non-viable.

Principle 9 – Supervisory techniques and tools: The supervisor uses an appropriate range of techniques and tools to implement the supervisory
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

34

approach and deploys supervisory resources on a proportionate basis, taking into account the risk profile and systemic importance of banks.

Principle 10 – Supervisory reporting: The supervisor collects, reviews and analyses prudential reports and statistical returns from banks on both a solo and a consolidated basis, and independently verifies these reports, through either on-site examinations or use of external experts. Principle 1 1 – Corrective and sanctioning powers of supervisors: The supervisor acts at an early stage to address unsafe and unsound practices or activities that could pose risks to banks or to the banking system.
The supervisor has at its disposal an adequate range of supervisory tools to bring about timely corrective actions. This includes the ability to revoke the banking licence or to recommend its revocation.

Principle 12 – Consolidated supervision: An essential element of banking supervision is that the supervisor supervises the banking group on a consolidated basis, adequately monitoring and, as appropriate, applying prudential standards to all aspects of the business conducted by the banking group worldwide. Principle 13 – Home-host relationships: Home and host supervisors of crossborder banking groups share information and cooperate for effective supervision of the group and group entities, and effective handling of crisis situations.
Supervisors require the local operations of foreign banks to be conducted to the same standards as those required of domestic banks.

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

35

Prudential regulations and requirements
Principle 14 – Corporate governance: The supervisor determines that banks and banking groups have robust corporate governance policies and processes covering, for example, strategic direction, group and organisational structure, control environment, responsibilities of the banks’ Boards and senior management, and compensation.
These policies and processes are commensurate with the risk profile and systemic importance of the bank.

Principle 15 – Risk management process: The supervisor determines that banks have a comprehensive risk management process (including effective Board and senior management oversight) to identify, measure, evaluate, monitor, report and control or mitigate all material risks on a timely basis and to assess the adequacy of their capital and liquidity in relation to their risk profile and market and macroeconomic conditions.
This extends to development and review of robust and credible recovery plans, which take into account the specific circumstances of the bank.

The risk management process is commensurate with the risk profile and systemic importance of the bank.

Principle 16 – Capital adequacy: The supervisor sets prudent and appropriate capital adequacy requirements for banks that reflect the risks undertaken by, and presented by, a bank in the context of the markets and macroeconomic conditions in which it operates.
The supervisor defines the components of capital, bearing in mind their ability to absorb losses.

Principle 17 – Credit risk: The supervisor determines that banks have an adequate credit risk management process that takes into account their risk appetite, risk profile and market and macroeconomic conditions.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

36

This includes prudent policies and processes to identify, measure, evaluate, monitor, report and control or mitigate credit risk (including counterparty credit risk) on a timely basis. The full credit lifecycle should be covered including credit underwriting, credit evaluation, and the ongoing management of the bank’s loan and investment portfolios.

Principle 18 – Problem assets, provisions and reserves: The supervisor determines that banks have adequate policies and processes for the early identification and management of problem assets, and the maintenance of adequate provisions and reserves.
Principle 19 – Concentration risk and large exposure limits: The supervisors determines that banks have adequate policies and processes to identify, measure, evaluate, monitor, report and control or mitigate concentrations of risk on a timely basis.
Supervisors set prudential limits to restrict bank exposures to single counterparties or groups of connected counterparties.

Principle 20 – Transactions with related parties: In order to prevent abuses arising in transactions with related parties and to address the risk of conflict of interest, the supervisor requires banks to enter into any transactions with related parties on an arm’s length basis; to monitor these transactions; to take appropriate steps to control or mitigate the risks; and to write off exposures to related parties in accordance with standard policies and processes.

Principle 21 – Country and transfer risks: The supervisor determines that banks have adequate policies and processes to identify, measure, evaluate, monitor, report and control or mitigate country risk and transfer risk in their international lending and investment activities on a timely basis.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

37

Principle 22 – Market risks: The supervisor determines that banks have an adequate market risk management process that takes into account their risk appetite, risk profile, and market and macroeconomic conditions and the risk of a significant deterioration in market liquidity.
This includes prudent policies and processes to identify, measure, evaluate, monitor, report and control or mitigate market risks on a timely basis.

Principle 23 – Interest rate risk in the banking book: The supervisor determines that banks have adequate systems to identify, measure, evaluate, monitor, report and control or mitigate interest rate risk in the banking book on a timely basis.
These systems take into account the bank’s risk appetite, risk profile and market and macroeconomic conditions.

Principle 24 – Liquidity risk: The supervisor sets prudent and appropriate liquidity requirements (which can include either quantitative or qualitative requirements or both) for banks that reflect the liquidity needs of the bank.
The supervisor determines that banks have a strategy that enables prudent management of liquidity risk and compliance with liquidity requirements. The strategy takes into account the bank’s risk profile as well as market and macroeconomic conditions and includes prudent policies and processes, consistent with the bank’s risk appetite, to identify, measure, evaluate, monitor, report and control or mitigate liquidity risk over an appropriate set of time horizons.

Principle 25 – Operational risk: The supervisor determines that banks have an adequate operational risk management framework that takes into

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

38

account their risk appetite, risk profile and market and macroeconomic conditions.
This includes prudent policies and processes to identify, assess, evaluate, monitor, report and control or mitigate operational risk on a timely basis.

Principle 26 – Internal control and audit: The supervisor determines that banks have adequate internal controls to establish and maintain a properly controlled operating environment for the conduct of their business taking into account their risk profile.
These include clear arrangements for delegating authority and responsibility; separation of the functions that involve committing the bank, paying away its funds, and accounting for its assets and liabilities; reconciliation of these processes; safeguarding the bank’s assets; and appropriate independent internal audit and compliance functions to test adherence to these controls as well as applicable laws and regulations.

Principle 27: Financial reporting and external audit: The supervisor determines that banks and banking groups maintain adequate and reliable records, prepare financial statements in accordance with accounting policies and practices that are widely accepted internationally and annually publish information that fairly reflects their financial condition and performance and bears an independent external auditor’s opinion.
The supervisor also determines that banks and parent companies of banking groups have adequate governance and oversight of the external audit function.

Principle 28 – Disclosure and transparency: The supervisor determines that banks and banking groups regularly publish information on a consolidated and, where appropriate, solo basis that is easily accessible and fairly reflects their financial condition, performance, risk exposures,
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

39

risk management strategies and corporate governance policies and processes.

Principle 29 – Abuse of financial services: The supervisor determines that banks have adequate policies and processes, including strict customer due diligence rules to promote high ethical and professional standards in the financial sector and prevent the bank from being used, intentionally or unintentionally, for criminal activities.

The Basel iii Compliance Professionals Association (BiiiCPA) is the largest association of Basel iii Professionals in the world. I t is a business unit of the Basel ii Compliance Professionals Association (BCPA), which is also the largest association of Basel ii Professionals in the world.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

40

Basel I I I Speakers Bureau
The Basel iii Compliance Professionals Association (BiiiCPA) has established the Basel I I I Speakers Bureau for firms and organizations that want to access the Basel iii expertise of Certified Basel iii Professionals (CBiiiPros). The BiiiCPA will be the liaison between our certified professionals and these organizations, at no cost. We strongly believe that this can be a great opportunity for both, our certified professionals and the organizers.

To learn more: www.basel-iii-association.com /Basel_iii_Speakers_Bureau.html

Certified Basel iii Professional (CBiiiPro) Distance Learning and Online Certification Program.
The Cost: US$ 297 What is included in this price: A.The official presentations we use in our instructor-led classes (1426 slides) You can find the course synopsis at: www.basel-iii-association.com/ Course_Synopsis_Certified_Basel_III_Pr ofessional.html B. Up to 3 Online Exams

There is only one exam you need to pass, in order to become a Certified Basel iii Professional (CBiiiPro). If you fail, you must study again the official presentations, but you do not need to spend money to try again. Up to 3 exams are included in the price.
Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

41

To learn more you may visit: www.basel-iii-association.com/ Questions_About_The_Certification_An d_The_Exams_1.pdf
www.basel-iii-association.com/ Certification_Steps_CBiiiPro.pdf C. Personalized Certificate printed in full color. Processing, printing and posting to your office or home. To become a Certified Basel iii Professional (CBiiiPro) you must follow the steps described at: www.basel-iii-association.com/ Basel_III_Distance_Learning_Online_C ertification.html

Basel iii Compliance Professionals Association (BiiiCPA) www.basel-iii-association.com

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->